Airline shares were gaining Tuesday, Oct. 10, after American Airlines Group Inc. (AAL) and United Continental Holdings Inc. (UAL) provided better than-expected third-quarter guidance.

American said third-quarter unit revenue exceeded guidance despite a loss of $75 million to due hurricanes Harvey, Irma and Maria.

Because of stronger-than-anticipated yield performance, American said it expects third-quarter total revenue per available seat mile (TRASM) to be up between 0.5% and 1.5%. American had previously guided to TRASM between flat and up 1%.

American also boosted margin guidance and said fourth-quarter traffic revenue per available seat mile will be higher than in the third quarter.

Meanwhile, United said third-quarter unit revenue will decline between negative 4% and negative 3.5%. That seemed to improve on guidance issued in September for a unit revenue decline between negative 2% and negative 5%.

American shares were up 4.8% and United shares were up 5.8 on Tuesday. JetBlue Airways Corp. (JBLU) was up almost 4% while Delta Air Lines (DAL) was up about 2.5%.

United's "guidance was slightly better than our model pretty much across the board, including unit revenue, unit costs excluding fuel, fuel price, tax rate, and share count," wrote Citi analyst Kevin Crissey in a note.

"None of these items were particularly far off but collectively the effect is significant," Crissey said. He raised his target price to $75 and $68 and raised his third-quarter per share earnings estimate to $2.20 from $1.91. Consensus is $1.95.

United terminal.
United terminal.

Deutsche Bank analyst Mike Linenberg raised his third-quarter earnings estimate dramatically, to $2.15 from $1.55 a share.

"Since UAL's last guide (September 6, 2017), we have witnessed three more hurricanes, some fall-off in Pacific demand, relatively high fuel prices, and constant fare discounting in many major markets," Linenberg wrote in a note.

"And yet United managed to keep its costs under control and hit its revised revenue forecast such that its pretax margin is now likely to come in slightly above the high end of its previous guidance (now guiding to 10%-10.5% vs. 8%-10%)," he said.

American, which has a Miami hub and a major presence in the Caribbean, said it had to cancel about 8,000 departures, resulting in a net negative impact to pretax earnings of approximately $75 million.

Nevertheless, American expects third-quarter pretax margin excluding special items to be up between 9% and 11%. Previous guidance was between 8.5% and 10.5%.

On the cost side, American said consolidated cost per available seat mile (CASM) excluding fuel and special items will be up about 5.5% in 2017, higher than previous guidance due primarily to lower planned capacity in 2017.

Third-quarter CASM excluding fuel and special items will gain about 4.5%.

For full-year 2017, American capacity is expected to rise about 1% over the 2016 level. Full-year domestic capacity is expected to be flat, while international capacity is expected to gain about 4$.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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